FI 4020

Flow of Funds and Cash Flow
Statements

Funds Analysis and Cash-Flow
Analysis
• Flow of Funds (Sources and Uses) Statement
• Accounting Statement of Cash Flows

Flow of Funds Statement
A summary of a firm’s changes in financial position from one period to another; it is also called a sources and uses of funds statement or a statement of changes in financial position. Has been replaced by the cash flow statement
(1989) in U.S. audited annual reports.

Why Examine the Flow of Funds Statement
QUESTION?
Why should we bother to understand a
Flow of Funds Statement that is no longer required to appear in U.S. audited annual reports? Why Examine the Flow of
Funds Statement
The Flow of Funds Statement:
•
•
•

Includes important noncash transactions while the cash flow statement does not.
Is easy to prepare and often preferred by managers for analysis purposes over the more complex cash flow statement.
Helps you to better understand the cash flow statement, especially if it is prepared under the
“indirect method.”

Flow of Funds Statement
What are “funds”? funds All of the firm’s investments and claims against those investments.

Sources and
Uses Statement
The letters labeling the boxes stand for Uses, ses Sources, ources Assets, ssets and
Liabilities (broadly defined). The pluses
(minuses) indicate increases (decreases) in assets or liabilities.

S
U

A L
- +
+ -

BW’s Determination of Sources and Uses
Assets

Cash and C.E.
Acct. Rec.
Inventories
Prepaid Exp
Accum Tax Prepay

2007

$

90
394
696
5
10

Current Assets $
1,195
Fixed Assets (@Cost)
1030
Less: Acc. Depr.
(329)
Net Fix. Assets $
701
Investment, LT
50
Other Assets, LT
223
Total Assets
$ 2,169

2006

$

$
$
$

100
410
616
5
9
1,140
930
(299)
631
50
223
2,044

+/-

+
+

+

S/U

S
S
U
-U
N/A
N/A
N/A
U
---

BW’s Determination of Sources and Uses
Assets

Cash and C.E.
Acct. Rec.
Inventories
Prepaid Exp
Accum Tax Prepay

2007

$

90
394
696
5
10

Current Assets $
1,195
Fixed Assets (@Cost)
1030
Less: Acc. Depr.
(329)
Net Fix. Assets $
701
Investment, LT
50
Other Assets, LT
223
Total Assets
$ 2,169

2006

$

100
410
616
5
9
$ 1,140
930
(299)
$
631
50
223
$ 2,044

+/-

$10
16
80
-1

S/U

S
S
U

U
N/A
N/A
N/A
70 U
---

BW’s Determination of Sources and Uses
Liabilities and Equity

2007

Notes Payable
$ 290
Acct. Payable
94
Accrued Taxes
16
Other Accrued Liab.
100
Current Liab. $ 500
Long-Term Debt
530
Shareholders’ Equity
Com. Stock ($1 par)
200
Add Pd in Capital
729
Retained Earnings
210
Total Equity
$ 1,139
Total Liab/Equity
$ 2,169

2006

$

$

295
94
16
100
505
453

200
729
157
$ 1086
$ 2,044

+/-

S/U

-

U

---N/A
+
S

+

---

S
N/A

BW’s Determination of Sources and Uses
Liabilities and Equity

2007

Notes Payable
$ 290
Acct. Payable
94
Accrued Taxes
16
Other Accrued Liab.
100
Current Liab. $ 500
Long-Term Debt
530
Shareholders’ Equity
Com. Stock ($1 par)
200
Add Pd in Capital
729
Retained Earnings
210
Total Equity
$ 1,139
Total Liab/Equity
$ 2,169

2006

$

$

295
94
16
100
505
453

200
729
157
$ 1086
$ 2,044

+/-

$ 5

S/U

U

---N/A
77 S

--53 S
N/A

“Basic” Sources and Uses Statement
SOURCES
Increase, Retained Earnings
Decrease, Accounts Receivable
Increase, Long-Term Debt
Decrease, Cash + Cash Equivalents
USES
Increase, Inventories
Increase, Accum Tax Prepay
Decrease, Notes Payable
Increase, Net Fixed Assets

$ 53
16
77
10
$156
$80
1
5
70
$156

Adjusting the “Basic” Sources and
Uses Statement
The following three slides are Basket
Wonders’ Balance Sheet and Income
Statement
This information will be needed to adjust the “basic” Sources and Uses Statement.

Basket Wonders’ Balance
Sheet (Asset Side)
Basket Wonders Balance Sheet (thousands) Dec. 31, 2007a

Cash and C.E.
Acct. Rec.c
Inventories
Prepaid Exp d
Accum Tax Prepay

$

90
394
696
5
10
Current
Assetse $1,195 Fixed Assets (@Cost)f
1030
Less: Acc. Depr. g
(329)
Net Fix. Assets $ 701 Investment,
LT
50
Other Assets, LT
223
Total Assets b $2,169

a. How the firm stands on a specific date.
b. What BW